If you’re the sort of person who likes their glass half-empty then there will be plenty of opportunities to find something to worry about at the moment. The recovery from the pandemic, the conflict in Ukraine and all the staff shortages in the news can turn anyone into a pessimist.
On top of that, everything in the news is telling us about a word that has hardly been on anyone’s lips for the last few years – inflation. There are even fears that the policymakers could “choke off” the economic recovery because of worries about inflation.
In the recent past, most economies have been worrying not about inflation, but about deflation – which can cause economies to stagnate. Seemingly suddenly, the effects of Covid and the conflict in Ukraine are causing prices to rise, and we’re hearing more and more about supply chain inflation. Simply put, manufacturers are having to pay more for raw materials because of delays and disruption caused by the pandemic. That cost carries down the line, and inevitably is leading in higher prices to consumers.
When the Bank of England’s chief economist Andy Haldane departed his role in the summer last year he warned that inflation is “rising fast” and could reach nearly 4% by the end of 2021 – well above the Bank’s target rate of 2% (which was exceeded in May 2021, when inflation reached 2.1%). The inflation rate for the end of the year actually finished up being even higher at 5%.
Concerns are also being voiced in Europe – which has suffered from too little inflation for almost the last decade – and in the US, with the Wall Street Journal forcibly making the point that it is supply problems causing the rise in prices, not an increase in consumer demand.
Given the above it is clear that inflation is now definitely something worth keeping an eye on. Inflation has the potential to impact the value of savings and investments, and interest rates paid on deposit accounts remain at, or very close to, historic lows. If inflation does keep increasing, then a deposit account paying less than 1% is going to look remarkably unattractive.
It’s not all doom and gloom, as with most things, a little planning goes a long way. We will be keeping a close eye on the inflation figures over the coming months and will make sure that any necessary action is taken at the appropriate time.
